Today, I want to teach you how to evaluate a MLM Company. I’m going to share 12 things you should research and find out more about, before you join a network marketing company.
To be quite frank with you, I’m tired of seeing people fail in our industry. I’m tired of seeing people jump from company to company every two to four months. I’m tired of seeing people have unrealistic expectations with their business, only to fizzle out of the network marketing industry in just a few months. And I’m tired of seeing our industry get a bad reputation.
I believe that finding the right MLM Company won’t make you rich or successful. Ultimately, you are the most important part of the success equation. You can succeed or you can fail in any network marketing company. Every company has people succeeding and people failing.
However, working with the right company is going to make your life a lot easier, it’s going to make life more enjoyable, and you’re probably going to get much better results in your business.
How to Evaluate a MLM Company
The 12 areas covered below are what I consider the must haves. Of course, your opinion may differ than mine and that’s perfectly fine. I want to cover each one of these 12 areas and give you some insights of what things you should look for in a network marketing company. Let’s get started.
# 1: The Products
The first thing to look for in a company is the products. Very few distributors will ever talk about this concept. Most people are so hyped up about getting rich quick that they forget to evaluate the products. When you’re evaluating different companies, the product line is the most important thing as I see it. The products are the business.
There are a few things you need to look for with the products.
First and foremost, is there a REAL demand for the products? Are people in the marketplace already using the product or a similar product? Are they accustomed to buying it? If there’s a very small demand for your product, or a very small amount of potential customers, that’s going to make life very difficult for you. You want something that has mass market demand that most people will use.
You want a commodity product, not a luxury product. If you promote a luxury product, people won’t keep reordering every month (highly unlikely anyway).
It is very difficult to sell a product that only five to twenty percent of the population will ever use. You want something that at least fifty percent of the population will use, something for the masses. Several examples might include shampoos, perfume, health products, personal care items, food products, vitamins, weight loss products, phone services, etc.
The next thing you want to look for in your product is it needs to be consumable OR used up every month. It needs to be something that gets ordered, used up within a month or two, and then reordered the following month or a couple of months later. You need to have something that’s consumable so you get repeat orders.
If your product is a one-time sale, it will be difficult to get repeat orders from your customers and distributors. If your product isn’t consumable, you will have to keep finding new customers! If your product isn’t consumable and used up, you want to make sure the company has a large VARIETY of different products to choose from, so there is something people could potentially order every month.
Next, the product has to be priced right. Let’s be honest. Most people cannot afford to spend a $100 for a weight loss shake or $90 for a multivitamin, or $80 for some magical juice from a third-world country. People are on a BUDGET. You have to have a product at a good price point that MOST people can afford. What I’d look for is a company with prices middle class Americans can afford.
Now, some people would disagree with my point about pricing. However, if the masses can’t afford your product, it’s going to be very difficult to sell it to people. If people can go to Wal-Mart or a similar store and get a competitor’s product that is similar to yours for 90% cheaper than what you’re selling yours for, it’s going to make it very difficult to find customers in your business. Just remember, your products are your real business.
It also helps if you are passionate about the products. You don’t have to be overly passionate about them, but you have to at least like and use the products yourself. You want to have some enthusiasm for the products. This will make it a lot easier to sell the products to people. If you aren’t willing to use the company’s products, or don’t like them, people will sense that and they won’t buy from you (and rightfully so).
# 2: The Company’s Track Record
The next thing that I look for is the track record of the company. How long have they been in business? Is the company a start-up company or an established company?
I personally avoid ground floor opportunities, but I also don’t want to join a company that is saturated and everyone knows about. From my own experience, I believe it’s best to join a company that is at least two to three years old, and has worked out most of the kinks.
Companies that have been in business for a few years have a much higher likelihood they will continue to stay in business, whereas start-up companies are very risky. On the other hand, established companies are very stable and secure, but they are typically a much slower build because of market share and saturation.
# 3: The Company’s Reputation
Reputation is very important, especially in today’s world. On the internet, you can find both good and bad things about ANY type of business (or person). That being said, if you do a quick Google or Bing search for the name of your potential company and you find hundreds and hundreds of pages claiming it is a scam, and hundreds of horror stories from former reps, tread cautiously.
Why? Because your prospect is going to go online and do a search before THEY JOIN the business. This is a hard obstacle to overcome if a huge majority of what they find online is negative.
Expect some negative. Evaluate what you read objectively and look for trends. If you find something that makes your spider senses tingle, dig a little deeper. Consider calling the corporate office or talk with a few successful reps to get answers to your questions.
# 4: Training and Resources
The next step to evaluate a MLM Company is looking at the training and resources. You want to do a little bit of digging, and you want to find out what type of training tools and resources the company offers. What are their catalogs like? Do they offer business cards? Do they have a company call? Do they do webinars? Do they have training tools that are available for free or available for purchase?
If the company itself doesn’t have a lot of training tools and resources, does the upline or your potential sponsor have some type of system or a training call, or resource or business tool that you can use to build your business? Tools are very important in your business. A carpenter has their tools. A mechanic has their tools. You can’t build a house without a hammer, nails and a saw. You’re not going to be able to build your network marketing business without business tools.
Dig a little deeper. Check out the company. See what they have available for tools. See how much they are selling you these tools for. I would assert that if they’re selling these tools for a huge profit, it’s probably the wrong company to join. If the company is making more from selling business tools to their distributors than they do with the products, something is wrong.
The samples, catalogs, fliers, brochures, business cards, and websites should be priced inexpensively. They have to be at an affordable price, almost at cost. If they’re selling you a prospecting DVD for $30 or $40, and you know their cost is $0.60; something is wrong with that picture.
Finally, I truly believe the company should offer a FREE distributor website, free back office, free training calls, free webinars and low cost business cards and training tools. There’s no need to charge you for these things.
# 5: The Distributor Agreement
The next step to evaluate a MLM Company is to read and study the distributor agreement. This is one area that a lot of distributors neglect. Most reps don’t read the distributor agreement prior to joining. They just sign it and get started without knowing the company’s rules and policies. This is a big mistake because a lot of network marketing companies have some shady rules.
A lot of companies have a no compete clause. In some cases, you can’t even own a second type of business when you’re a distributor. You might want to look into that. A lot of companies also have rules about you selling products from other companies or promoting multiple companies.
In addition, a lot of network marketing companies have policies that are NOT internet friendly. For example, if you’re trying to build your network marketing business online, many companies prohibit you from making YouTube videos, writing blog posts, or even sending out emails that talk about the company.
I understand all network marketing companies are going to have some rules in place to protect their intellectual property and to protect their reputation. That’s fine. Just make sure you read the distributor agreement before you sign up, so you know the rules. You want to know what you can and can’t do.
I would even suggest hiring a lawyer for an hour or two to go over the agreement with you. At a minimum, have a trusted friend or family member review it with you, just so you can have a second set of eyes looking at it.
Make a list of questions you have prior to getting started. Make sure you get answers to these questions before you join. Be an educated network marketer!
# 6: The Start Up Costs
The next step to evaluate a MLM Company is to find out the actual startup cost. I believe in today’s world, no network marketing business should cost more than $300 to start. There are thousands of MLM Companies to choose from and having to spend $300 or more just to get started just isn’t economical.
You shouldn’t have to buy a $300 to $500 starter kit just to qualify for certain bonuses and commissions either. Ideally, the sign up cost should be FREE or low cost and the only thing you should be buying is PRODUCTS for personal use and to share with others.
Spending $500 to $2,000 just to become a distributor is foolish. I think the lower the start-up cost, the better. Most of your prospects don’t have $500 to start a part-time network marketing business. Even if they are interested in joining, a high start up cost will make you lose a lot of great prospects.
# 7: The Compensation Plan
The next step to evaluate a MLM Company is to study the company’s compensation plan. Not all compensation plans are created equal. You want to see how many levels you get paid on, how much you get paid on each level, whether you must be on auto-ship to qualify for a bonus, if there are rules that cause you lose your downline, breakage, etc.
Another part of the compensation plan you must evaluate is the wholesale-retail markup on the products! Most MLM Companies offer two ways to earn money: retailing and recruiting. A lot of new reps don’t look at the retailing aspect of the compensation plan, but I believe that’s a critical part of the compensation plan.
I think anything above a 20 percent markup is more than fair, and 30 to 50 percent is even better. This allows you to make an immediate profit in your business by sharing the products with others. You should make money by retailing AND recruiting, not one or the other.
Please know there are LOTS of different types of compensation plans. The most common are types are the binary, uni-level, breakaway, and forced matrix. I’m not going to tell you that one is better than the other, but I prefer the binary plans myself.
# 8: The Company’s Financials
The next step to evaluate a MLM Company is review the company’s financial statements. Here are a few things to look for:
- Does the company have strong financial backing?
- Is it a debt-free company?
- Is it a publicly traded company?
- Is there money put away for future growth?
- What are the annual sales?
You might not be able to get the answer to all of these questions, but find out what you can. Studying the financials is pretty important.
I’ve always been a big fan of privately held companies over publicly traded companies. I believe that most of the publicly traded companies are more interested in the stock holders than the distributors. On the other hand, publicly traded MLM Companies must report their financial information each year, whereas privately owned companies do not have to do that. Whether you pick a privately held or publicly traded company, make sure you do your due diligence and study the financials a little bit.
Companies fail for a variety of reasons. In almost every case, it boils down inadequate funding or mismanagement of funds. You don’t want to partner up with a company, only to have it go bankrupt a few years later.
# 9: Company Leadership
The next step to evaluate a MLM Company is to research the company’s leadership team. Learn what you can about the owners of the company, the President, CEO, Chairman of the Board, etc. Find out their background, legal disputes, reputation, etc.
Ideally, you want to have leaders with previous experience as a distributor themselves. You want a company that is distributor friendly, with strong leadership, a big vision, and puts the distributors first. Without distributors, there would be no company for them to lead or manage.
Remember, everything rises and falls on leadership.
# 10: Retailing vs. Recruiting
The next step to evaluate a MLM Company is to find out the company’s views on retailing vs. recruiting.
If the only people in your business using the products are the distributors, I would tell you to run the other direction because you’re probably part of something illegal, or something that’s borderline illegal.
In all network marketing companies, there should be more customers than distributors. There should be a huge focus on everyone acquiring customers. For every distributor on your team, you want to have three to ten customers. If people outside of the business are not using the products, get ready to eat a big lunch and get ready to potentially have your company be in trouble with the FTC one day.
You want a product-focused company that focuses on getting customers in addition to team building. Without customers there is no business.
# 11: Systems
I had to include SYSTEMS as an important step to evaluate a MLM Company. Here are some basic systems to look for:
- Contact manager
- Replicated websites
- Getting Started
- Contests & Recognition
- Prospecting & Follow Up
- Training New Reps
Look around the company’s website to see what is offered. Talk with a few successful reps to see how they do things. The system is the solution. Systems based businesses achieve success whereas people based businesses normally fail.
# 12: International Markets
Let’s face it; we live in a global economy. Your network marketing company should do business in multiple markets. The more countries your company does business in, the better. You want to be able to sponsor people in different countries and build a global team. If your company only does business in one country you are really limiting yourself.
It doesn’t mean an opportunity is bad if it is in only one country, but if I had to choose between two different companies, and everything else was equal, I would pick the company that does business in multiple countries.
Plus, sponsoring people in other countries must be an easy process. You should not have to create a separate distributor account in each country your company does business in.
In conclusion, these are the 12 steps to evaluate a MLM Company. Make sure that you set aside some time to objectively evaluate your business opportunity, just like you would if you were starting a traditional business. Dig deep. Evaluate each one of these 12 areas. The company doesn’t have to score high in every single category, but make sure it passes the common sense test!
What are your thoughts? What tips can you recommend? Leave a comment below to let me know what you think. I look forward to hearing from you.